New York Fed says household debt climbed 0.3% in fourth quarter

Household debt in the U.S. climbed 0.3% in the fourth quarter as student and auto loans rose along with credit-card balances, according to a Federal Reserve Bank of New York survey.

Consumer indebtedness rose by $31 billion to $11.34 trillion, according to a quarterly report on household debt and credit released today by the Fed district bank. Non-housing borrowing increased 1.4% to $2.75 trillion, the third straight quarterly advance.

“The report shows some clear signs of healing in consumer debt markets,” James McAndrews, executive vice president and director of research at the New York Fed, said in the text of prepared remarks delivered today in New York. “While it is too soon to conclude that a trend has been established in which households are beginning to increase their debts again, there are signs that the four-year long contraction is slowing.”

The U.S. economy expanded at a 0.1% annual rate during the fourth quarter, according to revised figures released by the Commerce Department today, as stronger consumer spending and a rebound in residential real estate blunted the impact from cuts in military outlays running at a 22% annual pace.

The “recent improvement” in the housing market has been accompanied by the increase in consumer borrowing, and household delinquency rates are continuing to “slowly recover,” McAndrews said. As of year-end, 8.6% of debt was in “some stage of delinquency,” down from 8.9% in the third quarter, the New York Fed’s survey showed.

Student Loans

Auto loans climbed by $15 billion, outstanding student loans increased $10 billion and credit-card balances were up by $5 billion, according to the report. Americans have cut debt from a peak of $12.68 trillion in the third quarter of 2008, according to the New York Fed’s data.

McAndrews said that while he sees “signs of reduced headwinds and possibly greater monetary policy traction,” he remains “cautious about the outlook.”

The tax increases that took effect at the beginning of the year “reduces disposable incomes significantly for many households” and will probably result in consumer spending that will “weaken some” this quarter, McAndrews said. There also are “several vexing fiscal policy issues on the immediate horizon” that may damage growth, he said.

‘Major Plus’

A “major plus for the economy” has been the housing market, which may give a boost to growth of 0.5 percentage point in 2013, McAndrews said, citing improvements in housing starts, home sales and prices. In addition, manufacturing has “begun to look a bit brighter as well” and consumer spending has “clearly strengthened,” he said.

“Of course the quickening pace of auto, home, and capital goods sales and orders, all interest-sensitive goods, is consistent with the highly accommodative stance of monetary policy, which not only lowers interest rates but enhances credit availability as well,” McAndrews said.

New mortgage originations rose to $553 billion in the fourth quarter, and have been climbing since the third quarter of 2011, the New York Fed said in its report. About 210,000 consumers showed new foreclosures on their credit reports during the last three months of 2012, down 13.3% from the prior quarter.

“The data provides early evidence that consumers may be reaching the end of the four year deleveraging cycle, though we’ll need to see if this is sustained in upcoming quarters,” Andrew Haughwout, vice president and economist at the New York Fed, said in a statement released by the district bank.

The New York Fed said the report is based on data compiled by the bank’s Consumer Credit Panel, a nationally representative random sample from Equifax Inc. credit-report data.